A new chance for peace

OPEC Bulletin Commentary May 2005.

Boosting oil production in Iraq remains crucial for peace and increased market stability.

The changes which have taken place in Iraq this year will shape the country for decades to come. January saw the first democratic elections in over 50 years, and in April the President and Vice-Presidents of the country were announced along with a new cabinet representing all the major groups in Iraqi political life, including several women. This was followed in May by the announcement of one of the country’s most important portfolios — that of Minister of Oil — which went to Ibrahim Bahr Al-Ulum.

Bahr Al-Ulum is no newcomer to the portfolio, having served as the interim Minister of Oil from September 2003 to mid-2004 as a member of the Iraqi Governing Council. A petroleum engineer by trade, he has substantial international experience, and direct experience of OPEC affairs gained during his interim post.

In spite of these positive developments, Iraq still faces incredible challenges. The lack of security due to constant attacks on innocent civilians continues to threaten the country’s stability. In the aftermath of the US-led invasion in March 2003 the basic infrastructure of Iraqi society collapsed to such an extent that the new government is facing an extremely difficult situation which could take years to address.

It has been and could still be a long, hard road to peace and stability — the two prerequisites for a meaningful delivery of any tangible benefits to the Iraqi people. Although the interim government’s mandate is focused on institutionalizing democracy from the creation of a national constitution to the holding of general elections, Iraqis expect that peace and stability be addressed at the same time as other pressing needs, such as reliable power and water supplies, basic education, medical care, employment and personal safety.

Delivering all these necessities will depend to a large extent on the fortunes of the Iraqi oil sector, and here, timing will be crucial. Investment is much needed in energy infrastructure to repair years of neglect thanks to sanctions and more recently sabotage, but at the same time oil represents the country’s best chance to ensure economic and social stability.

Iraqi output has dwindled to around the 1.8 million barrels per day level but with the world’s second largest reserves, production of 6m b/d is a strong possibility and some forecast even more beyond that. However, the country’s oil potential will not be realized until the necessary repairs to installations and pipelines are successfully carried out and the twin blights of smuggling and corruption are effectively tackled.

Bahr Al-Ulum has vowed to do something about these issues, promising to “fight corruption and boost production”, recognizing that until these concerns are resolved any substantial foreign investment in the country’s oil industry will prove elusive.

Challenges aside, Iraq’s achievements in these past few months are welcomed by its fellow OPEC Member Countries, not to mention the global energy industry. These recent developments will hopefully lead to increased stability and peace for Iraqi citizens and instill confidence amongst oil market participants and investors.

With world demand for crude growing so fast, Iraq is now well-placed to realize its potential and return to its rightful role as a reliable oil supplier, for the benefit of the world at large but more importantly its own population who have a right to stability and peace.